American Oil and Gas Reporter - June 2019 - 38

N. Dakota Confronts Pore Space Issue
By Dan Larson
BISMARCK, N.D.-Now in its third
year of recovery, North Dakota's oil and
natural gas industry has reclaimed its
role as a key driver in the state's economy.
What to do with the resultant revenue
surge was among the long list of contentious issues during this year's legislative
session, reports the leadership of the
North Dakota Petroleum Council.
With its odd-year focus on fiscal issues,
the legislature tackled several big-ticket
financial topics, including a crucial local
infrastructure funding question early and
a record-setting budget bill late.
Other key issues of industry interest
this year included clarification of surface
owners' protection in subsurface disposal
disputes, resolution of a longstanding
contest over oil tax apportionment on
tribal lands, and an important step in the
state's quest for primacy on federal air
emissions rules, explains NDPC Government Affairs Manager Brady Pelton.
North Dakota's oil and gas industry
continues to earn support in the Capitol
for its important issues, Pelton affirms.
"A big reason for that, in addition to oil
and gas taxes accounting for more than
50 percent of all tax revenues collected
in the last five years, is because our operators back scientific research, they come
together to promote industrywide safety
programs and are active in local communities," he assesses.
Pore Space
Of the many issues NDPC tracked in
this year's legislative session, Pelton indicates, few were more important, or
more complicated, than what came to be
known as the pore space issue.
As it was originally written in 2009,
the state code's carbon dioxide storage
section was meant to authorize the use
of subsurface pore space for permanent
storage of CO2 produced by the state's
coal plants. However, in 2017, a North
Dakota Supreme Court decision applied
that law to a case involving a saltwater
disposal well and ruled that, under the
state's oil and gas production damage
compensation law, the operator owed the
surface owner damages for use of that
owner's pore space.
The surface estate owned the pore space,
the court ruled, and could seek damages
not only for saltwater disposal wells, but
also for underground natural gas storage
and CO2 enhanced oil recovery.
Introduced to clarify the intent of the
38 THE AMERICAN OIL & GAS REPORTER

pore space law, SB 2344 was amended
in April to remove a reference to temporary
natural gas storage, leaving intact the remainder of the bill to cover saltwater
disposal wells and CO2 injection used
for EOR, according to the final version,
which passed on April 17.
"We worked for many hours with
landowners to ensure the final version
protected the rights of those private property owners willing to have a subsurface
injection facility on their land," Pelton
recalls. "Most important, the bill clarifies
that the use of pore space does not, in
itself, damage that pore space."
He says the bill allows surface owners
to continue earning payments for commercial saltwater disposal wells on their
property. It also prevents other surface
owners within a unitized field or their
neighbors from claiming wastewater injected into the well is migrating into their
pore space.
Once the temporary gas storage language was removed, the bill had enough
support to pass both chambers and went
to the governor's desk for signature,
Pelton recounts.
Senator Jessica Unruh, R-Beulah, the
bill's primary sponsor, told the media
she pulled the gas storage language because of too many unresolved logistical
questions. Temporary underground gas
storage, even as a means of reducing gas
flaring, is "a technology we don't quite
have nailed down yet," Unruh is quoted.
The need to clarify authorized uses
of pore space also has prompted the
legislature to approve funding of continued research into both CO2 EOR and
temporary underground gas storage to
reduce flaring. Late in the session, the
House approved SB 2249, which allocated $5 million per biennium from the
state's oil tax revenue to research these
and other matters at the University of
North Dakota's Energy and Environment
Research Center.
Primacy Step
In 2017, the legislature approved SB
2327, which created a new cabinet-level
Department of Environmental Quality.
This year, the legislature passed HB 1024
to fund staff hires that would enable the
new department to pursue an issue of
importance for the industry, Pelton notes.
NDPC considers it a top priority for
state regulators to secure primacy from
the U.S. Environmental Protection
Agency for administering federal regulations affecting oil and gas operations,

he says. Passage of HB 1024 funds two
full-time DEQ employees to help the
department "get its ducks in a row and
make that application for primacy right
away," Pelton relates.
The budget bill includes funds for
hiring eight additional DEQ staff next
year to operate the program, he adds.
Among other regulations, primacy will
give North Dakota oversight over air
quality regulations such as EPA's 40 CFR
Part 60 Subpart OOOO, the Quad O rules
that set air emissions monitoring and reduction standards for oil and gas operations
and mandate leak detection and repair
programs, as well as Quad Oa standards
for additional equipment, reporting requirements and specific methane emissions
targets, Pelton notes.
Tribal Tax Shift
For much of the past decade, press
accounts note, leaders of the Three Affiliated Tribes, whose Fort Berthold
reservation produces about 20 percent
of North Dakota's oil, have sought to
increase their share of tax revenues generated by trust lands production. This
session, lawmakers passed a bill to increase that share.
SB 2312 revises the agreement between the tribes and state to increase the
tribal share of oil and gas taxes for trust
land production to 80 percent from 50
percent. Conversely, the split for taxes
on minerals produced within fee land
was increased to 80 percent, from 50
percent for the state.
"We supported the change because a
stable tax structure gives operators on
the reservation greater certainty," Pelton
explains. "That is expected to bring increased investment in Fort Berthold,
and datasets indicate that the revenue
shift will be offset with two additional
rigs running."
The state has collected oil and gas
taxes on Fort Berthold production since
an historic agreement in 2008, under
which the tribes agreed not to enact separate taxes.
"This was an issue where most everyone agreed on the long-term benefits of a
stable business climate," Pelton says.
Operation Prairie Dog
Early in the proceedings, legislators
resolved a local funding issue that prompted considerable debate in the weeks leading up to this year's session. Dubbed
Operation Prairie Dog, HB 1066 allocates
$250 million to local infrastructure proj-

American Oil and Gas Reporter - June 2019

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